University Medical Center board is hiring financial adviser

As consultants hired by the Louisiana State University System continue to develop a business plan and prepare for a bond sale to help finance the Charity Hospital successor, the University Medical Center governing board is preparing to hire its own financial adviser at a cost of $300,000, with the money likely coming from state taxpayers.

The board on Thursday selected Kaufman, Hall & Associates, an Illinois-based health care consulting firm, to act as a financial consultant. The vote authorized board Chairman Robert Yarborough of Baton Rouge to negotiate the final contract, which is not to exceed 150 days. Yarborough said Kaufman will not duplicate the work that the LSU consultants have done and continue to do as the board prepares to go to the bond market to borrow about $400 million to complete a $1.2 billion construction budget.

"We wanted someone who was independent, working just for this board," Yarborough said.

Before the UMC board convened for the first time in August, LSU hired J.P. Morgan's health care division to prepare a final business operations plan for the hospital. Another LSU hire, Causey, Demgen & Moore of Colorado, is charged with preparing the board's mortgage insurance application to the U.S. Department of Housing and Urban Development. That mortgage insurance is a key seal of approval that would allow bonds to be sold at a lower interest rate while reassuring investors.

Yarborough said Kaufman will "more or less look over the shoulder" of J.P. Morgan and Causey and make its own recommendations to the board, which will bear responsibility for the hospital's debts and operations. "They are not being charged with re-creating the wheel," Yarborough said. "They will just review and make recommendations on how we proceed."

At the board's first official meeting in August, Dr. Fred Cerise, LSU's vice president for health affairs, told the board that LSU's consultants could steer the board to the bond market. "I'm not saying you can't go hire another consultant," he said at the time. "But we've hired a bunch of 'em and they all seem to come back to the same thing: that we need a hospital and it should be about 400, 450 beds."

Cerise said Thursday that state and federal officials could meet as early as January to discuss the preliminary application Causey has already submitted. A mortgage insurance application would follow, with HUD's blessing. A bond sale would come no earlier than late spring or early summer.

The full board selected Kaufman on recommendation of a panel comprising four UMC board members and four outside volunteers: Steve Hemperly, president of Capital One Bank in New Orleans; Robert Boh of Boh Brothers Construction in New Orleans; Rob Stuart of Capital One in Baton Rouge; and Lee Griffin, a retired Baton Rouge banker. Hemperly and Boh served at the recommendation of the New Orleans Business Council. Stuart and Griffin were nominees from the Baton Rouge Area Foundation, which Yarborough enlisted to oversee the process.

Yarborough said the Baton Rouge Area Foundation received proposals from nine firms. Kaufman, he said, was a unanimous selection over three other finalists: Ernst & Young, PricewaterhouseCoopers and KPMG. The finalists, each among the national leaders in steering health care financing deals, were interviewed at a Thursday meeting with the advisory panel. That session was not public. The UMC board has not yet released any of the proposals it received from the firms.

During its open session, the board did not discuss how Kaufman will be paid, since the UMC board is specifically barred in its constitutional documents from directly receiving state appropriations. Yarborough and the UMC board's legal counsel, Lee Kantrow of Baton Rouge, said lawyers are working on a cooperative endeavor agreement between the state and the Baton Rouge Area Foundation that will allow the Louisiana Division of Administration to pay Kaufman's $300,000 fee. It is not yet clear whether the same kind of arrangement will be used as the board hires additional consultants, bond attorneys and underwriters as the project proceeds.

Both the selection process and the impending payment arrangement for Kaufman are functions of the legally unique conception of the UMC Hospital corporation.

LSU and the Division of Administration contemplated a new Charity Hospital even before Hurricane Katrina left the downtown structure incapacitated. Plans for a new structure commenced shortly after the storm, with LSU consultants taking the lead. But during the planning process, Gov. Bobby Jindal's administration determined that it did not want the hospital's construction debt to count as part of the state's borrowing limit, effectively crowding out the rest of the capital construction budget that finances projects across Louisiana.

So, UMC is structured as an "LSU affiliate" deemed independent of the state, similar to the Tiger Athletic Foundation at LSU, with the board appointees by Jindal, LSU, Tulane and other participating schools. Kantrow said Thursday that arrangement effectively makes the board a private entity. He suggested that allows the agreement with a private entity like the Baton Rouge Area Foundation and potentially justifies the selection process and its documents being withheld from public inspection.